Barclays take on the deal Bank of Montreal's (BMO.TO, BMO) share price declined more than 4% in the two days since it announced the US$16 Billion acquisition of Bank of the West from BNP Paribas.
Barclay's analyst John Aiken said the strategic benefits of the acquisition include further diversification of BMO's loan book and expansion of its geographic footprint, however the market's approval will depend on accepting a 35% reduction in Bank West's cost base, despite not closing any branches.
"Further, BMO's relative capital advantage has now effectively disappeared overnight, just when it had become a story for the group," Aiken said in a note to clients.
"We believe that this has the makings of a 'wait and see' approach, which may not bode well as a near term catalyst, particularly as regulators have currently been lukewarm when approaching integrations recently," the analyst said.
Aiken maintained an Equal Weight rating and $140 price target on BMO shares.